Testing for Collusion in the Hong Kong Banking Sector

Hong Kong Monetary Authority Working Paper Series

20 Pages Posted: 11 Sep 2007

See all articles by Jim Wong

Jim Wong

Hong Kong Monetary Authority

T. C. Wong

Hong Kong Monetary Authority - Research Department

Tom Fong

Hong Kong Monetary Authority

Ka-fai Choi

Hong Kong Monetary Authority

Date Written: February 8, 2007

Abstract

This working paper examines the degree of collusion in the banking sector of Hong Kong based on the conjectural variation approach. The results suggest that banks in Hong Kong operated in a competitive fashion in the loan market during the period 1991-2002 with no significant sign of collusion on pricing. The market conduct was largely maintained in subsequent years, despite significant changes in the operating conditions. While major bank consolidations in 2001-2002 have resulted in fewer banks and thus a market more conducive to develop and maintain collusions, interest rate deregulations implemented around the same time has promoted a more competitive environment. The estimation results show that while banks do not appear to have exercised any collusive pricing in either the retail market or the corporate loan market, it is relatively less likely to develop oligopolistic collusions in the corporate loan market than in the local retail market.

Keywords: Conjectural variation, price, Hong Kong banking, market structure

JEL Classification: G21, G28, L13, L22

Suggested Citation

Wong, Jim and Wong, Tak-Chuen and Fong, Tom and Choi, Ka-fai, Testing for Collusion in the Hong Kong Banking Sector (February 8, 2007). Hong Kong Monetary Authority Working Paper Series. Available at SSRN: https://ssrn.com/abstract=1012224 or http://dx.doi.org/10.2139/ssrn.1012224

Jim Wong (Contact Author)

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Tak-Chuen Wong

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Tom Fong

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre, Central
Hong Kong
Hong Kong

Ka-fai Choi

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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